U.S. Visa Law Holds Good and Bad For India

A draft U.S. immigration law, likely to be unveiled this week, holds good and bad news for Indian IT companies.

Indian outsourcing firms like InfosysTata Consulting Services and Wipro have large offices in the U.S. that service American clients. To keep costs down, these firms send thousands of Indian workers to such centers on skilled worker, or H-1B, visas.

Indian firms have long argued a cap on these visas is unfair. This year the cap of 65,000 H-1B visas already has been reached, meaning Indian companies will need to hire more-expensive short-term workers locally in the U.S., depressing their margins.

For Indian firms, the bill’s interest lies in changes it proposes for the H-1B program. The legislation seeks to increase the cap on these visas to 110,000, with the ability to go as high as 180,000 depending on economic conditions and demand. An additional 25,000 visas would be available for people who have earned advanced degrees in the U.S.

But that’s where the good news ends, says the National Association of Software and Services Companies, or Nasscom, the Indian IT industry trade body. It is worried by other proposals in the bill that will demand employers who want to tap the high-skilled-visa program to “pay significantly higher wages for H-1B workers than under current law.”

The bill also would require those employers to advertise open jobs for 30 days on a U.S. Department of Labor website before they could bring in foreign workers. Employers who rely heavily on non-U.S. workers would be forced to pay higher fees.

The idea here is to soften criticism in the U.S. that the visa program is being used to give jobs to Indian and other foreign workers that U.S. employees could do at a time of relatively high unemployment.

“The comprehensive immigration reform was necessary in the U.S. It’s good that it’s happening,” says Ameet Nivsarkar, vice president of Nasscom. But he said the association was worried the higher wage provision could be used to keep out Indian companies, by far the biggest users of H-1B visas.

“Our single biggest worry is that these rules may be applied in a discriminatory manner, only on a certain section of companies,” Mr. Nivsarkar said.

Nasscom is lobbying for a fairer visa policy in the U.S., he said. “That’s our job. We are working through our partners in the U.S. and with the government in India.”

More than 80% of the operating costs of Indian technology companies come from wages. Salaries to employees at overseas locations account for half of total wage costs. Any increase in overseas salaries may squeeze the profitability of the companies, analysts say.

“Any crimp on the movement of human capital will hurt trade between India and the U.S. and will eventually impact both Indian and non-Indian services companies, as well as their U.S. clients,” says Siddharth Pai, president of the Asia-Pacific business of U.S.-based technology advisory services firm Information Services Group.

By raising the overall costs for skilled-worker visas, the U.S. is raising barriers to trade with India, he added.

Shashi Bhusan, a senior research analyst at Mumbai-based brokerage Prabhudas Lilladher, says he expects the bill in its current form to lead to up to a four-percentage-point decline in operating margins for India’s IT companies as wage costs in the U.S. increase.

However, Mr. Bhusan says an increase in the cap on H1-B visas could help offset this by reducing IT companies’ dependence on expensive U.S. contract workers.

Earlier this month, the U.S. reached a limit on the yearly allotment of applications for skilled-worker visas for jobs starting in October or later, leaving many Indian IT companies at the mercy of a random selection of applications.

Infosys, India’s second largest software exporter by sales, last week warned that the shortage in visas may weigh on its operating profitability in the short term as the company will have to rely on more-costly American workers rather than Indian expatriates.

There are other bills in Congress that seek to bring even greater restrictions on the use of skilled worker visas but face a slim chance of passage through the legislature. Last month, U.S. Senator Charles Grassley, a Republican from Iowa, proposed a series of restrictions to the H-1B visa rules, including denying these visas to foreign firms operating in the U.S. who are deemed to be relying too heavily on expatriates rather than hiring locally.

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